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Amazon (AMZN) Gearing Up for a Crackdown on Counterfeits

It appears that Amazon.com, Inc. (AMZN - Free Report) has finally decided to come down hard on counterfeits in a bid to clean up its marketplace.

The retail giant has reportedly intensified its fight against counterfeits and has made this a major goal for 2017.

Bloomberg reported on Monday that Amazon is in the process of developing teams in the U.S. and Europe that will work with major brands to put a bar on the registry of fake products on its website.

A Vicious Cycle

So far, the brands selling on the platform would notify Amazon of the presence of a counterfeit product. Though the process was a long drawn one, Amazon was quick to respond and suspended the counterfeiters immediately.

But that didn’t help matters much as new accounts could be opened quickly, taking advantage of Amazon’s simple registration procedure. Alibaba (BABA - Free Report) and eBay (EBAY - Free Report) are also facing similar challenges.

The New Registration Process

It appears that Amazon has realized the fact that its registration method is overly flexible. The company is reportedly making the method stricter by making it mandatory for marketplace merchants to prove that they have the brand’s approval to sell them online.

The report also stated that the initiative will try and cover thousand of companies by 2017 including even those who do not sell on Amazon. The company has already begun experimenting with the new system with Nike and a few others.

Recently, Amazon teamed up with one of its sellers to sue three people for selling counterfeits on its site. The company has also sued a counterfeit racket based on similar allegations.

The retail giant recently said in a statement that “Amazon has zero tolerance for the sale of counterfeit items on our site,” and that it was “aggressively pursuing bad actors.”

The growth of the e-commerce industry, with consumers increasingly buying things online, is a dynamic going in favor of Amazon. While the big brands may build their own online stores over time, a platform like Amazon allows discovery of new buyers.

Smaller players are far more dependent on Amazon as they don’t have the resources to invest in technology and fulfillment to generate the kind of reach that Amazon can deliver. Amazon’s platform is currently being used by more than 2 million independent sellers.

Moreover, the market is in the early growth phase (considering opportunities in international markets), so the company’s high growth rates are likely to be sustained over the next few years.

But that should not make Amazon overly confident about its online business. When brands hit by counterfeits lose sales and potential customers, the ripple effects will be felt by Amazon as well and earn it a bad name.

Notably, the National Football League and Major League Baseball who were planning to sell merchandise on Amazon pulled out fearing Amazon’s lack of control over fakes. So an initiative like this was necessary before things went out of control..

Shares of Amazon have been steadily treading higher on a year-to-date basis. The stock generated a return of 12.82% compared with the Zacks Electronic Commerce Market gain of 9.94%.

Stock to Consider

A better-ranked stock in the broader technology sector is NVIDIA Corporation (NVDA - Free Report) , sporting a Zacks Rank #1. For the current year, the consensus estimate for NVIDIA has increased 33.3% in the past 30 days.

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